If you are like many business owners these days, you find it necessary to process credit cards in order to get paid for your goods and services, but the IRS came out with a new form called the 1099K that was distributed in January 2011 detailing how much money went through various merchant credit card processors. Fortunately, 2011 was a trial run, however 2012 doesn’t prove to be the case so you need to actually pay attention to these and make sure that they are correct.
If you received payments through a third party network that was more than $20,000.00 in gross income transactions AND you processed at least 200 transactions, this is what is being reported to you as well as the Internal Revenue Service. The merchant card services that process your payments are required by law to have these mailed out by no later than January 31st of every year. If you’re not sure what it’s saying, here are the key areas with their explanations:
Payee’s taxpayer identification no. – this is where your correct your EIN or Social Security Number (if this is not correct and you did not send them a W-9 form before to confirm it, you must do this immediately and request a corrected 1099-K form)
Box 1 – the total gross amount of merchant card/third party network payments made to you through the 2012 calendar tax year
Box 5a-5l – the gross amount (before credit card processing charges) for each month of the calendar year
If there are differences between your merchant reports and your bank statements from the 1099K, get your documentation together. Now what should you do when you see that there are differences based upon what’s been reported on your 1099K versus what you show in your financial records as well as your merchant statements? “The IRS announced in October that separate reporting of these transactions for other business receipts or income payments is not required for 2011. Taxpayers should follow the form instructions for reporting their gross receipts or sales. Report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E and F. There will be no reconciliation required on the 2012 Form 1099-K, nor do we intend to require reconciliation in future years.”
Unfortunately this exemption will no longer delay the process of receiving your 1099K forms every year, however it is not to say that if there are major discretions between the numbers reflected on a tax return and a 1099K for a small business owner aren’t going to be overlooked, but could be considered as an audit trigger. There is no legal requirement for how long you must hold onto your customer receipts and reports, however this will also help in any future disputes.
About Our Show Advisor: Dwayne Briscoe is the founder and owner of Bookkeeping-Results, LLC. Dwayne began his company in January 2007, based on the foundation to educate small business owners and bookkeepers who use QuickBooks®. Working as a full-charge bookkeeper and trainer in a variety of industries for over 15+ years, he is a certified Pro Advisor with 5 certifications, including Enterprise Solutions and Point of Sale. He is also an instructor at Brazosport College in Lake Jackson, where he teaches basic accounting, QuickBooks®, and basic payroll, along with hosting his own private classes.
Bookkeeping-Results, LLC has focused more on quality and not quantity for their clients, by paying attention to the details. Through regular continuing education participation, as well as exploring additional ways of “thinking outside of the box” to help expand people’s knowledge of their own financial well being, it’s important to focus on not only saving the client money but also making the client money.